IP: Lessons from the smartphone wars with recent developments at the ITC

In recent years, Section 337 investigations have become a favored forum for intellectual property enforcement, as filings have nearly tripled in the last five years.

By James R. Klaiber, Ryan S. Osterweil|January 28, 2014 at 08:00 AM

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The International Trade Commission (ITC) conducts investigations into allegations of unfair practices in import trade, as authorized by Section 337 of the Tariff Act of 1930. In recent years, Section 337 investigations have become a favored forum for intellectual property enforcement, as filings have nearly tripled in the last five years. Most Section 337 investigations involve allegations of patent infringement. The many patent investigations relating to smartphone technology made 2013 a banner year for important ITC developments.

In any ITC patent investigation, the ITC examines three basic factors: the presence of complainant’s domestic industry; whether the respondent infringes one or more U.S. patents; and whether the complainant overcomes respondent’s defenses. If all factors are met, the ITC may issue a cease and desist order, which would put an automatic stop on any future sales of goods already imported by the respondent, or an exclusion order, under which the U.S. Customs and Border Patrol is authorized to prevent all of respondent’s infringing products from entering the country at the border. The President, acting through the U.S. Trade Representative (USTR), has the power to disapprove — essentially a non-appealable veto — the ITC’s orders. Unlike patent infringement actions in U.S. courts, the ITC is not granted the authority to issue an order regarding money damages, but the extremely rapid docket schedule and self-executing remedies can be potent weapons for quick resolution of the underlying dispute.

In a case between Apple and Samsung, the ITC issued orders that would have barred importation and sale of Apple smartphones and tablet computers found to infringe U.S. patents owned by Samsung. Samsung’s patents were so-called “Standard Essential Patents” (SEPs), which means that any manufacturer whose product meets a particular industry standard must practice that patent. In another concurrent investigation, the ITC had held that it was not prohibited from the imposing exclusion orders based on SEPs.

But on Aug. 3, 2013, the U.S. Trade Representative (USTR) disapproved the ITC exclusion order that would have barred Apple’s products. This marked only the sixth time in the history of the ITC that the President or USTR has disapproved an ITC order, and the first time it has occurred since the Reagan administration. According to the USTR, the principal reason for doing so was the perceived harm caused by an SEP owner who can gain undue leverage by asserting the patent in a way that would exclude an implementer of the standard from a market, thereby obtaining a higher price for use of the patent than what would have been possible before the standard was set. Patentees considering asserting SEPs in the ITC immediately took notice, as it became clear that the all-but-forgotten veto power of the President could drastically curtail their ability to use the ITC as a tool against infringers.

More recently, in Microsoft Corp. v. ITC, the Federal Circuit upheld the ITC’s determination that Motorola did not infringe certain Microsoft patents and that Microsoft had not proven a domestic industry relating to articles protected by the patents. This decision stemmed from a 2010 complaint filed by Microsoft in the ITC against Motorola, alleging that Motorola had imported mobile phones and tablets that infringed Microsoft’s patents.

The Federal Circuit held that “Section 337, though not requiring that an article protected by the patent be produced in the United States, unmistakably requires that the domestic company’s substantial investments relate to actual articles protected by the patent.” A company seeking Section 337 protection must therefore provide evidence that its substantial domestic investment — e.g., in research and development — relates to an actual article that practices the patent, regardless of whether or not that article is manufactured domestically or abroad. As a result, the court concluded that “there is substantial evidence to support the Commission’s determination that Microsoft failed to meet that requirement… [because] Microsoft simply failed to identify any actual phones with the required components performing as required.” This holding, as well as the Federal Circuit’s InterDigital v. ITC decision earlier in 2013, define the bounds of what a domestic industry based on R&D or licensing must be for a complainant to seek redress in the ITC.

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